San Antonio could soon be off the hook for the Grand Hyatt hotel, city officials say, a year after the city ponied up more than $10 million to help the struggling hotel make its debt payments under a nearly two-decades-old deal.
The Grand Hyatt in downtown San Antonio is being sold to an Arizona-based nonprofit under a prospective agreement that the city says will remove its financial liability from the hotel and pay back millions of dollars in various IOUs the hotel has with the city.
“We spent a long time weighing the pros and cons of this deal,” said San Antonio City Manager Erik Walsh, who will be bringing the deal before a City Council vote next week. But in the end, Walsh said he didn’t see a lot of downside for the city.
Under the deal, which a Wisconsin government entity is backing with $450 million in bonds, San Antonio would maintain ownership of the land the hotel is built on, Walsh said. The annual rent the hotel pays to the city — or is supposed to pay the city — would move up the priority list for the hotel’s expense obligations. The nearly $5 million in back lease payments the hotel owes the city would be paid off, as would the more than $10 million the city paid to help the hotel out with its other debt payments, as well as the roughly $168 million remaining on the original bond issued by the city in 2005.
Once the new bond is paid off, under a 40-year schedule, ownership of the hotel itself would transfer from the nonprofit to the city. At that point the city would own the entirety of the convention center complex.
The city financed construction of the hotel — the largest in downtown San Antonio at more than 1,000 rooms — in 2005 by issuing roughly $208 million in bonds. The hotel is connected to the city-owned Henry B. González Convention Center, and consultants at the time touted the then-prospective hotel as a way to light a fire for the city’s convention industry.
The deal put the city on the hook for those millions of dollars, if the hotel couldn’t make the payments.
While the hotel never did as well as its consultants promised the city it would, it still managed to make those payments until 2020, when the pandemic walloped the hotel industry and left it reeling, even after lockdowns lifted.
The Grand Hyatt was closed from mid-March to September in 2020. Around that time, the city began to assist the hotel in making its debt payments, eventually totaling just over $10 million in assistance.
And even now, the industry hasn’t fully recovered. According to Source Strategies, a hotel industry consulting group based in San Antonio, occupancy rates and lodging revenue for hotels in the city still lags behind where it was in 2019.
Next week, City Council will vote whether to authorize consent for the new $450 million in bonds being issued by the Wisconsin governmental entity and conduit issuer, Public Finance Authority. Council will also vote whether to allow those bonds to pay back the debts Hyatt owes the city.
The new bonds are expected to close in April.
Under the deal, the hotel would be technically bought by CDC-SA, a limited liability company, whose sole member is Community Finance Corporation, a nonprofit. Both are based in Arizona. The nonprofit describes its mission in public filings as “lessening the burdens of government and to finance the erection of public buildings.” Its president is Michael Hammond, the CEO of a real estate company based in Tucson, PICOR Commercial Real Estate Services.
Hyatt would continue to operate the hotel through a 30-year agreement.
The changing ownership of the hotel shouldn’t affect the hotel’s roughly 600 unionized workers, whose contract holds that any new employer must still recognize and bargain with them. The local chapter of Unite Here Local 23 held a meeting with rank-and-file workers recently to assure them that the changes wouldn’t affect their union protections.
Not all hotel workers are protected under the contract, however, such as front desk workers, maintenance staff, security, accounting and managers.